Nifty can hit 100,000; mid, smallcaps are a real pot of gold: Vikas Khemani

By 2035, India's market-cap can touch $18-20 trillion as compared to around $4 trillion right now, Vikas Khemani said in this interview.

Calendar year 2024 (CY) has been a choppy affair for equities. VIKAS KHEMANI, founder, Carnelian Asset Management & Advisors, tells Puneet Wadhwa over a telephonic interview that India offers once in a lifetime opportunity to create wealth. Edited excerpts:

What's your key differentiator for the Bharat Amritkaal fund? There are many such funds that already exist.

The Carnelian Bharat Amritkaal Fund is designed to capture the exponential growth opportunity India offers as it becomes a developed nation by 2047. As we transition from $4 trillion to $30 trillion in gross domestic product (GDP), many new sectors and themes will emerge and create massive wealth. Through this fund, we are focusing on high growth companies, benefitting from seven megatrends arising in India during Amritkaal period, propelling structural/accelerated growth in five sectors. 

We have done lot of work over last 6-8 months in the process of preparing for this fund and at times even, we were surprised when we looked at many trends, possibilities, and opportunities in financial services and insurance (FSI), tourism, pharma, luxury consumption, EMS, Defence, Education, ER&D  sectors. 

If you zoom out and see the larger picture, investors can stay put in equities for long through thick and thin. Just to give you a perspective, India’s total BFSI market grew from $9 billion in 2001 to $1 trillion today, while this happened, pure banking was almost 100 per cent of capitalisation, but now 15 per cent comes from financial services, and it will change even further. 

In the last 23 years, equity market capitalisation of the entire sector grew around 100x and profit after tax (PAT) around 40x; and can offer similar growth opportunities in the Amritkaal period. India offers once in a lifetime opportunity to create wealth.

Should investors brace for more volatility in 2024, and will the intra-day swings get bigger in terms of absolute numbers?

2024 should be a low-teens kind of year as regards market returns. Short-term movement can be due to geopolitical conflict, increase in the crude oil prices, and more-than-expected inflation print in the US. These are hard to predict. 

By 2035, India’s market-cap can touch $18-20 trillion as compared to around $4 trillion right now. The Nifty50 can reach 100,000 by 2035. If this is the kind of wealth creation opportunity lies ahead, one should only approach investments from a long-term perspective. Any short term volatility should be only an opportunity and not risk. Historical fault lines of India like high current account deficit (CAD), fiscal situation, weak banking system, leverage, and too high inflation are not there, which makes us believe that we will be in a low volatility environment.

Is the era of making a quick buck in the equity markets, especially the mid-and small-caps over?

It really depends on one’s time horizon. We see mid-and small-caps as a real pot of gold. From a 10-15 years perspective, mid-and small-cap are likely to outperform the larger index, as they have done in the past. In 2001, there were only 20 companies with over $1 billion market-cap. Today, we have over 512. This reflects the journey of small & mid-caps. We think this number will go to 5,000.  

Fundamentally, India is well placed in terms of growth & return on equity (ROE) than compared with any other emerging countries. Valuation of any asset is an interplay of four factors – ROE, growth, interest rates, and risk premium. In each of these factors, India is far better placed than any time in the past and better than any other market. 

If this is the case, why should people question and worry about India’s premium valuation compared to the past and other emerging markets (EMs). We are not making a point that there are no risks, or there won’t be any volatility in the markets. There will be. Surely, there are pockets of euphoria, which one should avoid, but not the markets as a whole.

What have been your top bets / strategies in 2023 that have surprised you positively and negatively? 

Our ‘Magic framework’ has helped in identifying the trends early in the manufacturing and technology sector (like in October 2020) and continues to surprise us positively for India. We bought stocks of select public sector enterprises (PSEs), power, pharma, and niche information technology (IT) companies in 2023, which has worked out very well for us. We have bought power stocks as there is a lot of investment happening in this space. We see this as a global trend. Lot of power ancillaries will also do well.

Expectations from the March 2024 and fiscal 2025 (FY25) corporate earnings? Likely winners and losers?

We continue to see the beat in the corporate earnings growth and the momentum likely to continue. India’s corporate earnings to GDP as a percentage is moving up, and will grow from hereon. We like a lot of sectors but we think Pharma, Chemical & Power stocks can do well in fiscal 2024-25 (FY25).